High Court Of Madras
Commissioner Of Income Tax vs. Mrs. Marry Joseph
Section 160(1)(iv), 160(2)
Asst. Year 1983-84
R. Jayasimha Babu & R. Raviraja Pandian, JJ.
Tax Case No. 30 of 1999
19th March, 2003
Counsel Appeared :
Mrs. Pushya Sitaraman, for the Commissioner : None, for the Assessee
JUDGMENT
R. Jayasimha Babu, J. :
The assessment year is 1983-84. The question referred at the instance of the Revenue is :
“Whether, on the facts and in the circumstances on the case, the Tribunal is right in law in holding that the capital gains arising on the sale of the Quilon property is not assessable in the hands of the assessee but only in the hands of her four daughters ?”
2. The Quilon property is the one referred to in the will of the deceased father of the assessee, the late S.A. Pereira, who, in his will dt. 11th Sept., 1979, dealt with that property thus : “Regarding my house property at Quilon in survey No. 11005 in Uliyakoil Village, Quilon Taluk, Quilon District, Kerala State, I bequeath the same to my daughter. The income or sale proceeds of the said property have to be utilised for the education and marriage of my grandchildren. The balance, if any, can be taken by my daughter.”
3. The testator was also the owner of two businesses, both styled as Colombo Saree Works, one located in Coimbatore, and the other in Kerala State. He bequeathed the business in Kerala to his wife, and the business in Coimbatore was bequeathed to his daughter-assessee.
4. During this assessment year, the assessee sold the property for a consideration of Rs. 3,60,000. She deposited the proceeds in equal shares in the names of her four daughters in the business which had been bequeathed to her. She did not report any capital gain arising from the sale of the property.
5. The AO, however, held that she had, in fact, derived capital gains from the sale, and that such capital gain was taxable in her hands. He did so after rejecting the assessee’s claim that the property did not belong to her, but belonged to her four daughters and that any assessment of the capital gain will have to be in their hands. The capital gain was determined by the AO at Rs. 1,88,466 after deducting from the purchase price, the cost of acquisition of Rs. 18,000 and the deductions allowed under s. 80T which was then on the statute book.
6. The assessee having carried the matter in appeal, the CIT(A) accepted the assessee’s case that in terms of the will she was not the legatee, but her children were. For so holding, reliance was placed on s. 88 of the Indian Succession Act.
7. The Revenue having thereafter carried the matter to the Tribunal, the Tribunal affirmed the order of the CIT(A). It also has held that the assessee is a trustee for her daughters.
8. Learned counsel for the Revenue submitted that the CIT(A), as also the Tribunal have fallen into error in holding that the assessee was not the owner and that she was not liable to be taxed on the capital gain resulting from the sale of the property. It was rightly pointed out by counsel that in terms of the will, the bequest is in favour of the assessee which resulted in her becoming the legal owner of the property. If the assessee is regarded as a trustee for her daughters in view of the charge created on the property in favour of the assessee’s daughters for their education and marriage expenses, even then, the assessee would still be liable, as she would become a representative-assessee as a trustee appointed under a testamentary instrument in view of s. 160 (1)(iv) of the IT Act. As provided in s. 160, sub-s. (2) of the Act, every representative-assessee is deemed to be an assessee for the purposes of the Act.
The terms of the will are quite clear. The testator clearly bequeathed the properties to his daughter, the assessee. The bequest was not in favour of the grandchildren. The daughter in whom the property vested after the demise of the testator was required to apply the income from the property for the education and marriage of her children. In the event of the property being sold, the proceeds were also to be applied for the same purposes. The residue, if any, after meeting those expenses was to belong to the assessee. The assessee’s position, as held by the Tribunal, would in the circumstances be that of a trustee of the income and the sale proceeds for her daughters. As a trustee appointed under a testamentary instrument, she would become a representative-assessee under s. 160(1)(iv) of the Act and, as such, is deemed to be an assessee for the purposes of s. 160(2) of the Act.
The question referred is, therefore, answered by holding that the assessment is to be made on the assessee as a representative assessee for each one of her four daughters for whose education and marriage expenses, the proceeds of the sale were required to be applied in terms of the will executed by the assessee’s father.
[Citation : 268 ITR 217]
